A lackluster summer for NAFTA

Free Market Reflections with Steve Dittmer

You might well have seen President Trump in recent weeks all over the world (North Korea, G7 Summit in Quebec, NATO meetings and Helsinki, Finland with Vladimir Putin). You might not have seen him at campaign events in West Virginia, Michigan, Minnesota and elsewhere, if Canadian TV doesn’t carry those hugely successful events.

The point is, while President Trump has been very busy, negotiations with Canada over NAFTA have not been high on his priority list. A fellow we trust in the administration, economist Larry Kudlow, clarified recently that Trump has been pushing things in the direction of negotiating separately with Mexico and Canada.

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“When you have to compromise with a whole bunch of countries, you get the worst of the deals,” Kudlow said. “Why not get the best? Canada is a whole lot different from Mexico,” Kudlow told the Washington Post. (“Trump Aims to Split up NAFTA Negotiations” (06/05/2018).

“NAFTA has kind of dragged on,” Kudlow said. “The president is not going to leave NAFTA. He is not going to withdraw from NAFTA. He’s just going to try a different approach.”

The assurance from Kudlow pulling withdrawal off the table is at least comforting long-term.

Perhaps negotiating separately, given the wholly different economies of Mexico and Canada, could speed things up. While all three countries would have to approve changes, given the differences, there might not be huge conflicts in new provisions.

But final success still depends on Trump giving up on things like the five-year sunset, the inclusion of which Prime Minister Trudeau had reiterated to him recently by Vice-President Pence.

Perhaps the countries could borrow from the Trade Promotion Authority (TPA) setup, wherein renewal is automatic unless the legislative bodies of all three countries vote to withdraw. That would be pretty close to the ironclad certainty that businesses need to invest and plan supply chains.

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As for bilateral negotiations, the dynamics of the three countries are not totally off the radar. After U.S. Secretary of State Mike Pompeo finished with his meetings with the North Korean dictator, he made a special visit to meet with the incoming Mexican president and key members of the team that will take over in December. Interestingly, they had a whole list of issues they wanted to discuss, some of them a bit surprising for a supposedly socialist political team.

One of the moving pieces in U.S. trade negotiations we have been concerned with was the president’s fast track Trade Promotion Authority, which was due to expire June 30. In past years, this has often been the subject of big fights in Congress. Democrats in Congress withheld TPA authority from President Bush for some years. The Senate had been discussing a resolution of disapproval of President Trump’s use of tariffs as a negotiation tool already.

Yet while we can find information about the president’s request, we can’t find much evidence he got it, except that the U.S. Trade Representative’s office claims he received it. Evidently, it was set up to renew unless Congress passed a resolution against it.

“While such a resolution would typically be considered unlikely with the president’s party controlling both chambers, some Republicans have voiced concern that the Trump administration has not fully adhered to the negotiating objectives in the current TPA law with respect to some of the proposals it has put forward in the NAFTA talks,” according to the “Sanders, Travis & Rosenberg (STR) Trade Report, issued on March 23.

In addition, the New Democrat Coalition, which was viewed as “integral” to the last congressional approval of TPA in 2015, expressed skepticism in July about a possible extension.

STR says leaders of the coalition have complained that the president “and his team have shown no serious commitment to consulting with or listening to Congress on trade,” and instead have continually threatened to terminate NAFTA negotiations, taken punitive measures against our allies through broad tariffs and barriers, re-opened KORUS with minimal consultation with Congress, and hurt American consumers and workers through unilateral trade actions.

The leaders of the coalition called on Republicans to join them in exercising greater oversight and demanding the Trump administration significantly step up their engagement, according to the STR Report.

I attended a three-country NAFTA discussion meeting hosted by the Canadian Consulate in Denver recently. It was plain to see that both Canadian and Mexican officials considered the U.S. as a trading partner and international ally but were nonplussed at their treatment by the Trump Administration.

Consul General Stephane Lessard put his finger on the ultimate pressure point: the upcoming threat of a 25 per cent tariff on cars, an “$80 billion declaration of war.”

I’d have to agree. If the U.S. conducts its study and schedules 25 per cent tariffs on all cars imported into the U.S. (50 per cent of all vehicles are imported), everyone is going to get serious very quickly.

Pricing and business models are under pressure. U.S Agriculture still supports Trump’s big push but their patience is not bottomless. Patience and nerve is required now.

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